WASHINGTON, D.C. ― U.S. Rep. Ben Ray Luján of New Mexico’s Third District introduced legislation today to help hard-working families save for college.
At a time when 70 percent of graduating seniors have an average student loan debt of $28,950, the Save for Success Act reforms the American Opportunity College Tax Credit (AOTC) to increase its impact and encourage saving for college.
Created in 2009, the American Opportunity College Tax Credit allows families with college expenses to receive a $2,500 tax credit for a student’s first four years of post-secondary education, for a total credit of $10,000. This assistance, however, only comes after students have already incurred higher education expenses. In fact, students don’t often receive assistance until months after they have paid their tuition bills. Partly because of this, the latest research shows that the AOTC fails to boost college success.
Luján’s Save for Success Act improves the AOTC and makes higher education more achievable by allowing families to claim up to $250 of the AOTC every year they save for their child’s future education. For example, a family that opens a 529 plan for a child and deposits $100 would qualify for a tax credit of $100 that year. When the child eventually enrolls in college, she can use that savings and any accumulated interest to help pay for her education. She will also be eligible for $9,900 from the AOTC.
“In New Mexico, nearly half of 2014 graduates held an average student debt of almost $19,000. This mountain of debt is weighing down our young people while making a college education harder to reach for too many families,” Luján said. “By reforming the American Opportunity Tax Credit to allow it to help families in a child’s earlier years, we can encourage savings while multiplying the effect of the tax credit, providing a greater bang for the buck.”
By advancing AOTC eligibility, families will be encouraged to save for college and benefit from the growth in savings over time. While the size of the AOTC does not change, a family that maxed out this credit starting at the birth of a child and invested it in college savings would use $4,500 of the AOTC and have nearly $15,000 saved by age 18, assuming a modest 5 percent rate of return. The family would still be eligible for the remaining $5,500 of the tax credit.
The Save for Success Act also directs the Secretary of the Treasury and the Secretary of Education to establish an outreach initiative to improve awareness of the AOTC and creates a voluntary pilot program to test the “real-time” payment of the AOTC so that college students receive relief as they incur costs.
The Save for Success Act has received broad support for its ability to leverage the AOTC and help families begin to save for college.
Andrea Levere, President of the Corporation for Enterprise Development, said, “Saving for college, in 529s and other accounts, can have an enormously positive impact on higher education access and success. But we know that 529s mainly help the highest income earners while doing little for low- and moderate-income families. Lujan’s excellent new legislation, the Save for Success Act, will change that. This bill is the most thoughtful 529 reform to be introduced in Congress and will bring the promise of college savings to all families.”
“Every student in New Mexico should have the opportunity to pursue higher education. Unfortunately, the cost of college is putting that dream out of reach for too many and New Mexico leads the nation in student loan defaults,” Betty Patterson, President of NEA-NM said. “Congressman Lujan’s Save for Success Act will make higher education more achievable for New Mexico students by helping families save for college.”
“With the state’s deep budget cuts to higher education, college is more out of reach for low-income families than ever,” said Veronica C. García, Ed.D., Executive Director of New Mexico Voices for Children. “Anything we can do to make college more affordable and help families save for college will be good for New Mexico and the nation. The Save for Success Act is a big step in that direction.”
“The Save for Success Act will incentivize families to begin preparing for college when their children are young, which will increase college success,” said Claire Dudley-Chavez, Executive Vice President for Policy and Stakeholder Engagement at United Way of Santa Fe County. “This legislation will help offset the rising cost of a college education, by delivering real time payments that will make a direct and immediate impact on working families’ checkbooks. United Way of Santa Fe County commends Congressman Ben Ray Luján for his dedication to New Mexico’s students and supports this legislation.”
In addition, the legislation has been endorsed by 529 Dash, American Federation of Teachers, Center for Global Policy Solutions, Center for Social Development (Washington University in St. Louis), Center on Assets, Education, and Inclusion (University of Kansas), First Focus, I Have a Dream Foundation, and National Education Association.